The Tale of the Tariffs: A Vietnam Deal Made to Stop China

Transshipping is the name of the game.

Since President Donald Trump’s tariff turbulence began, the administration has concentrated on tariffs and non-monetary trade barriers. While levies are self-explanatory, the White House needed to provide more details about these restrictions, which have probably caused US officials to lose sleep at night. One of the grievances is centered on transshipments, a backdoor maneuver employed by China to evade tariffs. For years, Beijing has relied on regional neighbors to make this strategy successful, particularly Vietnam – and now Trump is trying to curtail the years-old method.

Good Morning Vietnam

The president announced in a July 2 Truth Social post that he has reached a trade agreement with Vietnam. Trump and his team stopped short of offering specifics. Still, the public is aware that Vietnamese imports entering the United States will encounter a 20% tariff, and transshipments from third countries through Vietnam will face a 40% import duty. US products exported to Hanoi, meanwhile, will enjoy a 0% levy.

“It is my Great Honor to announce that I have just made a Trade Deal with the Socialist Republic of Vietnam,” Trump said on the social media platform after speaking with Vietnam’s top leader, To Lam, who had been one of the first world leaders to propose a 0% tariff deal following the April 2 “Liberation Day” event.

White House officials say this is the first of many agreements expected to come through the pipeline ahead of the highly anticipated July 9 deadline. Trump has confirmed that he will send letters to US trading partners either agreeing to their proposals or assigning a tariff rate to countries that failed to satisfy the administration. The president’s remarks shot down Treasury Secretary Scott Bessent’s suggestion that Washington could extend trade talks to Labor Day.

For now, Vietnam can be added to the small but growing list of countries that have made a deal. But while Vietnam was the centerpiece of a bilateral arrangement, China was the chief subject.

Combating Transshipping

Whether through Commerce Secretary Howard Lutnick or top trade adviser Peter Navarro, the White House has been explicit in its displeasure with China gaming the global trading system by relying on third parties, namely Vietnam, to export goods to the United States. In recent years, this practice has become increasingly prevalent, resulting in tens of billions of dollars in trade benefits to both Beijing and Hanoi.

How does transshipping even work? China sends a large volume of goods, including apparel, electronics, and furniture, to Vietnam. These products are then repackaged, relabeled, or minimally processed to indicate that they were manufactured in Vietnam rather than the authentic country of origin. This helps Beijing dodge US tariffs. Under the new trade deal, if China continues this practice and the United States discovers it, Vietnam will be subject to a 40% tariff.

Although Vietnam benefits immensely from transshipping, local officials have been attempting to halt this widely known practice by centralizing the electronic issuance of certificates of origin. Nevertheless, because it is so pervasive, the authorities have struggled to keep up.

Meanwhile, economic observers say that the new arrangement will likely bolster Vietnam’s manufacturing prowess since the country enjoys a tariff advantage over Beijing. Moving forward, the United States and Vietnam will emerge from the trade agreement. America continues chipping away at China’s economic might, and Vietnam continues to attract foreign investment and manufacturing.

Can’t Sustain the Momentum

President Trump likely wanted to see another gangbuster balance trade report one month after the deficit was cut in half. However, new Bureau of Economic Analysis data shows that the trade gap widened to $71.5 billion in May. Exports tumbled 4% to $279 billion from a record $290.5 billion in April, while imports dipped 0.1% to a seven-month low of $350.5 billion.

This comes one week after the goods trade deficit increased to $96.59 billion last month from $86.97 billion in April.

In the end, the numbers were not surprising as the White House authorized pauses and lower tariff rates, allowing importers to take advantage of the situation and try to boost their foreign purchases. This could help the United States avoid a dramatic rise in inflationary pressures as businesses maintain well-stocked inventories before higher import duties are implemented.